Good morning, and welcome to the Bel Fuse Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. I would now like to turn the call over to Jean Marie Young with Three Part Advisors.

Thank you, and good morning, everyone. Before we begin, I'd like to remind everyone that during today's conference call, we will make statements relating to our business that will be considered forward-looking statements under Federal Securities laws, such as statements regarding the company's expected operating and financial performance for future periods, including guidance for future periods in 2024. These statements are based on the company's current expectations and reflect the company's views only as of today and should not be considered representative of the company's views as of any subsequent date. The company disclaims any obligation to update any forward-looking statements or outlook. Actual results for future periods may differ materially from those projected by these forward-looking statements due to a number of risks, uncertainties, and other factors. These material risks are summarized in the press release that we issued after market close yesterday. Additional information about the material risks and other important factors that could potentially impact our financial performance and cause actual results to differ materially from our expectations is discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for the fiscal year ended December 31, 2023, and our quarterly reports and other documents that we have filed or may file with the SEC from time to time. We may also discuss non-GAAP results during this call, and reconciliations of our GAAP results to non-GAAP results have been included in our press release. Our press release and our SEC filings are all available at the IR section of the website. Joining me today on the call is Dan Bernstein, President and CEO; Farouq Tuweiq, CFO; and Lynn Hutkin, Vice President of Financial Reporting and Investor Relations. With that, I'd like to turn the call over to Dan.

Thank you, Jean, and we appreciate everyone joining our call this morning. We are pleased that our third quarter sales and gross margins each landed above the midpoint of our guidance. As anticipated, our Connectivity segment had a strong quarter, driven by robust sales into Aerospace, Defense, and Space applications. Our Magnetics segment experienced incremental growth on a sequential basis from Q2 2024, which is good to see. The Power segment sales were within our expectations for the quarter, given the previously discussed seasonality in Europe and during August and the impact from trade restrictions on one of our former suppliers in China. The only new factor which impacted revenue of our Connectivity segment was the strike at one of our aerospace customers, which slowed the value of shipments late in the third quarter. During the third quarter, we have made two key additions to the corporate team as we continue to add high-impact individuals. In the new creative role, Uma Pingali has joined as Global Head of Sales and Marketing, and Anubhav Gothi has joined as Global Head of Corporate Contracts. Uma was most recently the President of Global Sales at Farnell, a premier distributor in the electronic industry. Throughout his long career, Uma has proven a track record of growing sales through various efforts, including the turnaround of underperforming regions, entering new geographic markets, pursuing a tailored approach to product technology, and identifying and executing cross-selling opportunities. Uma will be responsible for creating and executing strategies that drive growth beyond the current trends, identifying areas for improvement, challenging existing processes, and implementing innovative solutions to optimize sales performance. Anubhav is a seasoned procurement leader with a heavy history of securing efficiencies and achieving favorable outcomes for multibillion-dollar companies including CommScope, Motorola Mobility, and Google. He's been tasked with developing and implementing a procurement strategy that fosters robust vendor relations, negotiates contracts, and champions cost-effective, sustainable procurement practices on a global basis. We are very much looking forward to the contributions that both Uma and Anubhav will bring to develop the future positions of the company for long-term success. Now I'd like to turn it over to Lynn.

Thank you, Dan. From a financial perspective, in summary, we saw continued margin expansion on a lower sales base when looking at Q3 2024 versus Q3 2023. Third quarter 2024 sales came in at $123.6 million, representing a 22.1% decline from the third quarter of 2023. The sales fluctuation was driven by our Power and Magnetics segments, as we will discuss further, partially offset by growth in connectivity sales versus Q3 last year. Our gross margin increased to 36.1% in Q3 2024 from 35% in Q3 2023, and these profitability improvements were largely driven by our Magnetics and Connectivity segments. Turning to some details at the product group level. Power Solutions and Protection sales for the quarter were $48.7 million, representing a 35% decline from Q3 last year. This decline was mainly due to lower sales of our power products used in networking and consumer applications. On a positive note, we saw continued strength in sales of our rail products, which grew over 40% from Q3 2023, accounting for a $2.6 million increase in sales from Q3 2023. This segment posted a gross margin of 39.4% in the third quarter of 2024 as compared to 41.7% in Q3 2023. Turning to our Connectivity Solutions Group, sales for Q3 2024 came in at $55.7 million, up 7.6% from Q3 2023. The main growth driver within connectivity was the distribution channel, where sales were up $1.2 million compared to Q3 2023. Sales into commercial air applications totaled $12.5 million for Q3 2024, an increase of $1.2 million or 10.3% from Q3 2023. Military sales amounted to $11.6 million for the quarter, a level consistent with Q3 2023. The gross margin for this group was 36.6% for the third quarter of 2024, which represents continued improvement from the 35.8% gross margin in the third quarter of 2023. R&D expenses were $5.4 million in Q3 2024, a level consistent with Q3 2023. We expect future quarters to be generally in line with Q3 2024 expense. Our selling, general, and administrative expenses were $26.7 million as compared to $23.8 million in Q3 2023. Excluding the $4.2 million of legal and other costs related to the Enercon acquisition, our SG&A expenses were lower by $1.3 million compared to Q3 2023, primarily due to lower variable expenses such as commissions and incentive compensation. Our effective tax rate for the third quarter of 2024 was 27.8%, up significantly from the 18.2% in Q3 2023. There was a one-time item contained in the third quarter tax provision in the amount of $1.3 million. Excluding this item, the effective tax rate would have been 15.7% in the third quarter of 2024. Turning to balance sheet and cash flow items, we ended the quarter with $163.8 million in cash and securities, an increase of $36.9 million from year-end. We generated $65.7 million in cash flows from operating activities during the first nine months of 2024 and had capital expenditures of $7.9 million. From an inventory perspective, the downward trend that we experienced over the past several quarters has continued into Q3, reflecting a $12.3 million reduction from year-end. The lower inventory levels were primarily seen in the areas of raw materials and finished goods, as we continue to work through our own inventory on hand.

Thank you, Lynn. As we are rounding the corner here on inventory in the channel and starting to see some green shoots of recovery, the team has been laser-focused on executing operational improvements as we have been doing for the last few years. During the third quarter, we initiated a consolidation of our fuse manufacturing operations. Currently, our fuses are manufactured at a separate site in China and will be transitioned to other existing sites as a means of further reducing our operational footprint and adding efficiencies to our overhead costs. The fuse initiative is expected to result in a restructuring cost of approximately $4.2 million, of which $200,000 was incurred in the third quarter. $2.1 million is expected to be incurred in the fourth quarter of 2024, with the balance of $1.9 million expected to be incurred in 2025. This project is scheduled for completion by the end of Q1 2025 and is expected to result in annualized cost savings of $1.5 million once complete. The previously announced restructuring project at our Glen Rock, Pennsylvania facility is progressing as planned with scheduled completion by the end of 2024. With cumulative expected annualized cost savings of $2.5 million, we’ve been benefiting from approximately $1.5 million of the Glen Rock cost savings throughout 2024 and expect $1 million to be incremental in 2025. Turning to M&A, and as announced in mid-September, Bel has agreed to acquire 80% of Enercon Technologies with a path to acquire the remaining 20% by early 2027. With 100% of their sales within aerospace and defense end markets, the addition of Enercon accelerates our strategy of moving further into critical applications with strong sole source positions. This creates more cohesion across our product segments and introduces exciting cross-selling opportunities. We’ve been working very closely with the Enercon management team since signing and are very much looking forward to collaborating with them to define our new go-to-market strategies for our combined businesses supporting the aerospace and defense end markets across the regions we collectively serve. The transaction is expected to close during the fourth quarter of this year and we look forward to sharing additional details as we work through our post-close integration process. Looking ahead to the fourth quarter, we’re anticipating Bel’s sales to be largely in line with Q3 2024 levels as there are some offsetting factors at play. The range noted in our earnings release of $117 million to $125 million includes some rebound in rail sales and slight recovery in networking and distribution across the business. This is offset by our normal seasonal slowdown in Q4 each year given the Golden Week holiday in China in October and other holiday closures in the U.S. and Europe later in the quarter. We were pleased that we did start to see an uptick in bookings during the third quarter. Within our Power segment, Q3 2024 bookings were double what they were in Q2 2024, representing their highest booking level since Q3 2023. Given our standard lead times, this increase in bookings will largely translate into higher sales going into 2025. Overall, we are pleased with the progress made in strengthening Bel’s base business over the past four years and are excited about the road ahead with Enercon and the new members of our corporate team. This is a pivotal moment for Bel as it marks the transition from our self-help phase to a new growth phase of Bel’s journey.

Thank you, Farouq. At this point we’d like to open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. The first question comes from the line of Bobby Brooks with Northland Capital Markets.

Hey guys, good morning. Thank you for taking my question. So with the Power and Protection segment there’s a pretty notable step down sequentially and you guys touched on it a little bit. I know you had the supplier that you lost because of the recently enacted trade restrictions, but that was only for $3 million to $4 million of business per quarter and we were down more like $10 million. Could you just discuss a little bit more what drove that sequential step down and maybe compare that with the factors you’re seeing as why you see year-over-year growth in 2025?

Sure. So Bobby, are you looking at it sequentially from Q2 to Q3?

Yes, yes.

So the other impact, in addition to the supplier on the trade restrictions, the largest thing impacting Power from Q2 to Q3 is actually the seasonality that we have every year in Europe in Q3. So things like rail and e-mobility are all based out of our Europe segment, and those are just naturally lower in the third quarter because there are some closures at our Slovakia site for a few weeks in August each year. So that would be the largest dip in addition to the CUI business that we previously discussed.

And then just the bookings that you guys saw in September and October have given you that confidence that you’re going to see year-over-year growth return in the Power and Protection segment?

Yes, we think that is the case, Bobby. Obviously, a fair amount of moving pieces here, but I think as we noted, we do expect a return to growth here across the business, including Power, looking at inventory levels, looking at the conversations that are going on with our customers, especially as we’re coming to year-end. So I’d say we’re feeling better about a return to growth.

That’s terrific to hear. And then maybe just an update on finding that new supplier to replace the business that was lost because of that trade restriction.

Yeah. So we are in the process of identifying replacements as we talked about. It’s going to take a little bit of time to have the customers requalify their design to substitute the parts from the old vendor to the new vendor, and that’s going to take some time. So that’s why we think we’ll recover some of that as we go through 2025.

Okay, that’s awesome. And then last one for me, just trying to dig a little bit more into the strong bookings. I know back in the first quarter call we talked about the interesting AI opportunities for especially within the Power and Protection. So I was just curious if any of those bookings that you saw in September and October have been related to any AI orders or products, or maybe any other kind of emerging growth opportunities for you.

Yes, some of the bookings have come from AI customers. We'll have to follow up in the next bookings as we look at conversations that are about to come in. The other segment that saw nice growth is our Fuses business. It is generally considered one of the earlier recovery items in our industry, which is a good leading indicator.

I would completely agree with that. Thank you for the color, guys, and I’ll return to the queue and hats off on the nice quarter.

Thank you. The next question comes from the line of Jim Ricchiuti with Needham & Co.

Hi. Thank you. Good morning. You may have provided this detail, I apologize if you did. But I’m wondering, can you quantify the impact from the strike at Bel in the quarter and a follow-up to that is just whether the guidance for Q4 has taken into account the potential for a longer strike, which now appears to be the case.

Yes. We haven’t quantified that, Jim. We definitely had an impact in terms of our inability to ship, but I would say it was not overly material for this quarter. The team did a nice job reacting to that. Our guidance for Q4 is reflective of the impact of the strike.

Got it. Thanks. And just on the green shoots that you cited in networking and industrial, is this a case of simply excess inventory being worked down enough and some restocking?

Sorry, Jim. So when inventory gets backed up, it’s not as bad from our customers' perspective because they still have inventory to sell. Once the inventory comes down, we turn to a little more normal cadence of ordering that’s more reflective of demand.

Got it. That’s helpful. And just – did you give a Commercial Space revenue number? I know it's a small part of the business, but it's obviously a growth area.

Yes. So the Space revenue for Q3 was $2 million. So that brings our year-to-date up to $6.3 million.

Thank you. The next question comes from the line of Theodore O'Neill with Litchfield Hills Research.

Thank you very much and congratulations on a good quarter. My first question is about Enercon Technologies. I was wondering if you could talk a bit more about what this brings to the table in terms of products that you may not have had before in the Aerospace and Defense industry? And what their cross-selling opportunities are?

So for Enercon, it will roll into our Power segment. Today, our Power segment does not service these end markets, so it is a new market addition, both on the Defense, Commercial Air, and Emerging Space as well. Enercon also opens up a couple of new markets for us that we are not in today. Their product set is somewhat different, but also similar to ours with highly custom applications. They obviously have strong customer relationships, and we think there's opportunity for revenue growth and cross-pollination.

One of the target areas that we were looking at before we acquired them was Europe, and we realized to be successful in Europe, they had to have a manufacturing base. We have an ideal factory that can support their needs. We're excited about the new relationships and have a lot of potential for cross-selling.

Okay, yes, makes sense. My other question is just about the rail business. Is this a highly regional business? And what region is showing the strength in rail?

Our manufacturing comes out of Slovakia. The customers that we service are global. So when we talk about rail, we are largely supporting our European-based customers who sell throughout the world.

Okay, thanks very much.

Thank you. As there are no further questions at this time, ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Dan Bernstein for closing comments.

Thank you for joining our call today. We look forward to continued success, and we'll speak to you in the fourth quarter of next year. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.